Author: Ye Kai (WeChat / Twitter: YekaiMeta)
In the past month or so, I have been busy organizing meetings and implementing projects. RWA (Real World Asset) is becoming increasingly popular, with topics such as Hong Kong-compliant RWA and RWA-related regulatory policies and projects in Shanghai and Singapore FinTech events being hot topics.
Top exchanges are also emphasizing RWA and stablecoins, with OKX, ByBit, Binance, and Matrixport all launching related products or initiatives.
Compared to two years ago when no one paid attention to RWA, now everyone is talking about it.
Looking at the Hong Kong-compliant RWA market, as the mainland market pays more attention, the compliant market is becoming as hot as the offshore market. Currently, Hong Kong's compliant RWA is mainly issued in the form of traditional debt funds, with private placement and tokenization, but there is no trading on licensed exchanges or PI (Professional Investor) client trading, and the secondary market for retail investors is still far away.
However, some recent voices are worth reflecting on. One is the mainstream voice in Hong Kong FinTech that is promoting consortium chains around the RWA hot topic, which is a clear regression. Another is that Hong Kong's RWA does not truly realize the asset and industrial scenarios of RWA tokenization, and is over-financialized, focusing on private placement and stock market linkage, which is a regression to 2.0.
In mainland China, the "Malu Grape RWA" project, claimed to be the first domestic RWA project, is essentially using the old route of the property rights exchange/commodity exchange, with agricultural company equity as the underlying asset, and it is unclear whether it will be connected to the Hong Kong fund structure or directly listed on the domestic exchange.
The current state of the Hong Kong RWA market
The development of the Hong Kong-compliant RWA market mainly depends on the attitudes of three parties: the HKMA, the SFC, and the HKEX. The HKMA's Ensemble sandbox project focuses on four main RWA themes, and the first RWA project, Longi's cross-border RWA financing, has stimulated the mainland market's awareness and demand for RWA, and has also accelerated the pace of RWA projects in Hong Kong.
The core advantage of Hong Kong is still the super intermediary role between mainland assets/funds and overseas offshore funds. The key is to promote the cross-border RWA financing of high-quality mainland assets, rather than cross-border payments, which have seen a significant decline in exports in the past two years.
In the mainland, we use "controllable assets and trustworthy asset management" to explain RWA. The key questions are: where are the assets? Where are the funds? Where is the liquidity? Issuing RWA without considering trading and liquidity is irresponsible.
The early compliant RWA market requires a guiding framework, guiding funds, as well as a multi-level infrastructure framework, and a diversified market participation, not just project financing, but also liquidity LPs, arbitrage investment funds, etc., which requires a framework and fund guidance.
Hong Kong's RWA is like the Hong Kong stock market twenty years ago, which can be seen as the "Hong Kong stock" of the cryptocurrency era, and it is also the listing of high-quality mainland assets in Hong Kong, which requires the use of Hong Kong's legal, financial and other professional talents and resources, as well as the establishment of a red-chip structure SPV, and it is also oriented towards global financing. Therefore, we and our partners have jointly submitted a proposal for a "crypto stock exchange" to the Hong Kong Stock Exchange, hoping to promote the design and implementation of a "crypto board" under the main board and GEM. Crypto stocks are more borderless and more retail-oriented, but the core essence remains unchanged, with corporate financing and institutional markets as the main focus.
Therefore, traditional finance need not worry, it is not to subvert you, but still the content you are familiar with, only the form has been renewed, and it is necessary to embrace Web3.0 and virtual asset digital currencies. RWA may be the transformation path for financial practitioners in Central, Hong Kong.
What to do without liquidity?
Compliant RWA is not just the Hong Kong compliant RWA path, there can also be the licensed compliant Singapore STO model, with the Fund/SPV+Non-Securitie offshore model, and the SEC-compliant ATS model in the US (US RWA model).
In this way, the international interoperability and cross-border regulatory arbitrage design of financial products can be used to create liquidity. Treat Hong Kong's RWA private placement or primary market as tokenized US bonds, then do pledging and secondary market trading on licensed exchanges in Singapore or Dubai, and the native tokens derived from the second-layer pledging can be traded on offshore exchanges. This is a cross-border ATS arbitrage model, which will be elaborated on later.
The native Token is the core incentive mechanism of RWA, in fact, the RWA Token after the tokenization of traditional financial products is equivalent to a 2.5 generation security Token, rather than the native Token. In the RWA ecosystem, the new Token based on the pledge of the underlying RWA assets or generated for the governance of the underlying RWA assets is the true native Token. This is the key to liquidity.
The issue of liquidity is also the advantage of financial practitioners in Central, Hong Kong. Makers, market makers, short sellers, Middle East fund managers, etc., all kinds of liquidity measures, the goal is the same, the only difference is the underlying asset, from stocks to RWA products.
Another key to liquidity is the exchange.
The licensed exchanges in Hong Kong are stable and conservative, suitable for the primary market and compliant deposits and withdrawals; the licensed exchanges in Singapore emphasize issuance and underwriting, suitable for the primary market and partial secondary market; the licensed exchanges in Dubai highlight the secondary market and the linkage with offshore cryptocurrency exchanges.
RWA liquidity will provide a huge market opportunity for vertical exchanges, i.e. RWA exchanges. A good RWA asset must have scale and depth, which must be supported by a good industry track, and the RWA upgrade of this industry track will support a vertical industry RWA exchange, such as the gold industry track, with gold mining asset RWA, physical gold RWA, gold trade and supply chain finance RWA, gold lending DeFi, gold industry chain payment and settlement PayFI, gold stablecoin, etc.
The opportunity is huge, but you also need to be able to seize the opportunity. Top exchanges have already started to focus on RWA, and I am more optimistic about a licensed exchange platform focused on RWA.
The significance of the RWA licensed exchange may be epoch-making. From the perspective of corporate financing, different eras of enterprises correspond to different exchanges, the NYSE corresponds to traditional enterprises, and the Nasdaq corresponds to Internet high-tech, because the valuation method, pricing strategy, PE multiple and trading system of the NYSE are difficult to reflect the value of Internet high-tech, so the Nasdaq emerged; while the RWA exchange corresponds to emerging assets and virtual assets, the Nasdaq is also difficult to give appropriate or reasonable valuation and trading system for carbon assets and virtual assets, so the RWA exchange will inevitably become a new era exchange.
Finally, I recall a word: edge. In recent times, there has been a debate online about the edge of a former female gymnastics Olympic champion and world champion. Is the edge a freedom issue or a suppression issue?
Looking back at the current momentum of RWA, in the early development stage, we need to be cautious about excessive proliferation leading to bad money driving out good, but also to protect those RWA promoters who have good intentions but are walking on the edge. We are willing to work with everyone to continue to move steadily forward, to voice a moderate compromise and compliant professional voice, to guide and promote the development of the 2.5 model of RWA.
#ARAW Always RWA Always Win! In order to promote the orderly development of the market, Brother Kai plans to recruit apprentices, open a research and study camp, and cultivate internationally-oriented RWA consultants. Welcome young talents to contact us privately; R01Labs will also gradually launch AMA discussions and workshops on different industry tracks and themes, welcome to add WeChat YekaiMeta to join the RWA entrepreneurship discussion group and participate in the specific RWA track and project product discussion.
